Grow Your Portfolio the Intelligent Way

April 2006 Issue

By Richard C. Young

Would you let your daughter date a Rolling Stone?

The world’s greatest rock and roll band was the brainchild of Lewis Brian Hopkin Jones. Brian was the first Rolling Stone. He not only gave the
band its name, but also was its spokesman and driving force in the early years. And Brian Jones was by far the best musician in the early incarnation
of the Rolling Stones.

It was, however, Andrew Loog Oldham, the band’s early co-manager and producer, who created the band’s original bad boy image and crafted
the Stones into the band it pretty much remains to this day. Kinks manager Robert Wace has said, “Without Andrew, the Rolling Stones would have
been just another band. Nowadays, when I see Jagger being interviewed, I wonder if he has any conception of the huge debt the Stones owe Andrew.”

Lock Them in the Kitchen

It was A.L.O. who locked Jagger and Richards in their kitchen to force them to begin writing their own songs. It was A.L.O. who convinced Mick and Keith
to own their own master tapes and lease them to the record company. And obviously it was Andrew who came up with the “hide your daughter” campaign.

In the four years (1963–1967) A.L.O. was on the scene, he introduced the Stones to the world, producing 10 record albums for U.S. release, including
the Stones’ anthem “Satisfaction.”

In 1967, Andrew Loog Oldham walked away.

Thank God for A.L.O.

In the forward for Rolling with the Stones, former Stones bass player and chronicler Bill Wyman writes, “One person whom I want to thank
and offer my own tribute to is Andrew Oldham. Without Andrew, we would have been a different band, and things would not have worked out the way they
did. In those early years, Andrew helped define us, he had the insight to carve out our niche.”

As I write, the Rolling Stones are getting set to play before an unbelievable two million people (yup) in a free concert at the Copacabana Beach in
Rio de Janeiro. Look for a DVD from this concert. Three of the original six Stones continue to tour and make records. And their newest CD (A Bigger
Bang) is a nice, simple, stripped-down, tightly produced A.L.O.-sort-of effort. It’s their first album of new material in nearly 10 years.

A.L.O. was the key to the creative vault of the song-writing team of Jagger and Richards. Over 35 years after the Beatles’ last album (Abbey
Road) and split-up in 1969, the Stones roll on. How can this be? Because of synergy and chemistry layered on the original Chess Records Blues themes
of Muddy Waters, Bo Diddley, and especially Chuck Berry.

Chemistry & Synergy

Chemistry and synergy resulting in the immense wealth garnered by Jagger and Richards is not achieved without an enormous amount of focus and patience.
In Fortune‘s cover story of 30 September 2002, it shows that the Rolling Stones generated $1.5 billion in revenues just from 1989 through
mid-2002. That’s serious money in anyone’s book. Jagger and Richards have simply done a better job than anyone else in the entertainment
industry of keeping on message and delivering a consistently easy to understand and easy to like product without altering their style regardless of society’s
huge changes.

How are you doing at keeping on message with your investment program? How’s your focus and patience? Are you keeping it simple and going with
what you know rather than with what someone tells or sells you?

From the date of the Rolling Stones’ first U.S. record release in 1964 (England’s Newest Hit Makers—Abkco: 93752), I’ve
been focusing on compound interest for you and, of course, for me. Here’s a little compelling arithmetic for you. Let’s say you invest $1,000
at 10% for 20 years and draw your interest out each year to spend at Whole Foods or your local Harley shop. At the end of 20 years, you will still have
your $1,000 principal plus the value of $2,000 in interest drawn over the period—a total economic value to you of $3,000.

Power Investing

Now let’s assume that you instead made no draws and reinvested at 10% for 20 years. Your economic value at the end of 20 years would be $6,727.
That’s $1,000 original principal, $2,000 in simple interest, and $3,727 in interest on interest (to total $6,727). Wow, over half of your total
economic value comes from interest on interest. That is power! That’s investing.

Pay Me Now

When you invest in portfolio securities, your first question should be, what am I getting paid? I do not want you investing your serious money in securities
that pay you neither interest nor dividends. Do not put your hard-earned capital at risk with the view of buying a portfolio security today and selling
it to someone else tomorrow at a higher price. To me, this is speculation, not investing. Go with what you know by not only demanding to be paid, but
by also holding your taxes and transaction costs to a minimum, as I do. Trust me, over time, the penalty of taxes and transaction costs is a brutal killer
for most investors. Think reverse compounding here.

OK, so compound interest and dividends must underpin your investment thinking. Albert Einstein described compound interest as “the greatest mathematical
discovery of all time.” Ben Franklin wrote on compound interest, “‘Tis the stone that will turn all your lead into gold.” Charlie
Munger, longtime partner to Warren Buffett, wrote, “Understanding the power of compound return and the difficulty getting it is the heart and soul
of understanding a lot of things.”

The Buffett Way

Compound interest necessarily involves patience. My longtime lead phrase for investors is “diversification and patience built on a foundation
of value and compound interest.” In the Buffett Way, you learn that much of Warren Buffett’s success in managing Berkshire’s
investment portfolio can be attributed to his inactivity. Buffett believes that most investors cannot resist the temptation to constantly buy and sell
stocks. He tells readers that because of the tax on capital gains, he figures that his buy-and-hold strategy has advantages over investment approaches
that emphasize short-term trading. I think W.B.’s striking the nail in the coffin of active trading. W.B. tells us that lethargy bordering on sloth
remains the cornerstone of his investment style.

Ben Graham Speaks

In almost each of my strategy reports over the decades, I’ve written about the power of dividends. Mr. Value Investing, Ben Graham, devoted a
ton of ink to the subject. In fact, B.G. wrote, “One of the most persuasive tests of high quality is an uninterrupted record of dividend payments
going back over many years.” Graham believed that “the defensive investor might be justified in limiting his purchases to those meeting this
test.”

Here are a couple of perhaps shocking comparisons for you in support of my theory on the vitality of dividends. In 2004, the highflying NASDAQ had a
pretty good year of it, up 8.6%. The boring, stodgy, dividend-yielding Dow utilities, however, were up by 25.5%. Unreal. And in 2005, another tough year,
the NASDAQ was up only 1.4% while the boring Dow utilities ran up a gain of 21%. Two years don’t make a lifetime or complete any story, and I know
that.

The Power of Dividends

Here’s my killer four-stock display outlining the dividend record and compound growth rate (from 1996–2005) for four of my favorite core
common-stock holdings. Coca-Cola (NYSE: KO), PepsiCo (NYSE: PEP), Harley-Davidson (NYSE: HDI), and General Electric (NYSE: GE) have increased their dividends
each year under review. Coke and PepsiCo have nearly identical and powerful compounded dividend growth rates. GE’s is strikingly 30% better. And
Harley is on a roll that I expect will continue, if not quite as strong.

If in retirement you can draw a nice dividend annually from a blue chip and enjoy the standard of living stabilization of powerful dividend increases,
how much more can you ask for? When you invest for or in retirement, invest for your dividends either to compound or to spend at Whole Foods. Your annual
dividend increases will maintain purchasing power of your portfolio. And the trend increases in the prices of your dividend-increasing stocks will provide
the icing on the cake.

GE, KO and UTX

I’ve included two relative yield charts on GE, KO, and UTX. I consider United Technologies a mini GDP-type of quality company, the type of corporate
benchmark others can be measured against when seeking to make comparisons. Check out my GE/UTX relative yield chart. GE’s yield is high in relation
to UTX’s. Conversely, GE’s relative yield versus Coke’s is way down. The indication here is that even though GE is a nice buy versus
UTX, Coke is even cheaper than GE. And I think such is the case.

Coke cannot get arrested. The board and management have taken one of the best franchises in the world and kicked the stuffing out of it. Shame on them
all. Warren Buffett has just split the board, and it’s hard to believe that his giant share position won’t be dumped. I know it’s compelling
to think, no way I’d buy Coke here. Over the last five years, Warren Buffett and all other Coke investors have actually lost money, but then the
NASDAQ, since end 1999, is down over 43% and the Dow is down 3%. The climate this century has been generally stinko. Regarding Coke, how bad a business
can it be whipping up some goopy caramel syrup (with a secret formula, of course) and sending it on at little cost to your powerhouse outside bottler
(CCE-Coca-Cola enterprises) for an injection of fizzy water, bottling, and distribution? Can there be a much better business model? Coke has paid loyalists
a dividend since 1893. At year-end, Coke had $1 billion in debt and $5 billion in cash. Nothing to hate here. The stock has a relatively low P/E and
relatively high yield (nearly 3%). What is needed is a great big broom along with a little innovative thinking on the order of the Pepsi model. Buy KO.

The Quadrennial Theory

Here is some Big Picture perspective from which you can benefit mightily. Next year (2007) is the year before a presidential election year. According
to those who know, Condoleezza Rice is not running, but when you run the Electoral College numbers with her in the race, the outcome is pretty darn interesting.
I’ve written in the past that there is no one factor that dominates your Big Picture thinking about your investments more than politics. I can
prove it. In no year since I graduated from Shaker Heights High School in Ohio (what a great place) in 1959 has the S&P 500 not risen in the year
before a presidential election. Does this mean the S&P 500 will be up in 2007? Well, the two factors that underpin politics and sit on top of earnings
and dividend momentum are GDP and interest rate momentum. If you believe the GDP can continue to advance in 2007 and that interest rates will not blow
through the roof, then earnings and dividends are likely to hump along at a decent pace.

OK, as the year 2006 wends into fall, I want you to be certain that your equities position is up to full speed for your needs. Until we have some negative
info to the contrary on economic and interest rate momentum in 2007 and 2008, we have a good shot at decent stock market returns.

My charts on the four-year presidential-election cycle are striking in that they show the importance of politics regarding the stock market. All politicians
specialize in putting a spin on events so as to put the best face forward for their particular causes.

In a recent WSJ editorial, “Goldwater’s Example and the Spirit of 1994,” Rep. John Shadegg of Arizona wrote, “Ten years
ago, the American people put Republicans in control of the House of Representatives for the first time in more than 40 years. It was a historic achievement,
made possible because we stood for the principles the American people believed in: smaller government, returning power to the states, lower taxes, greater
individual freedom and above all—reform.”

In his always insightful and thought-provoking “Fact & Comment,” Steve Forbes recently wrote, “Shadegg is a true reformer who
has never lost sight of why he and his party were elected. He’s been a stalwart tax-cutter and a vigorous foe of his party’s wasteful spending… Republicans—and
the country—could use a sound dose of Shadegg’s Reaganesque approach to public service.” Steve’s right on the mark here.

Bush Tax Cuts Work

Senate Majority Leader Bill Frist (R-Tenn.) recently contributed a particularly concise and well-focused editorial on tax cuts for readers of USA
Today. “Many people in Washington have long known a dirty little secret about tax-cut measures: when done right, they actually result in
more money for the government. Ever since the Senate approved the last major tax relief bill, in 2003, they [revenues] went up 5.5%. Last year, they
rose 14.5%, the largest increase in 25 years. Total government collections, in fact, increased more after President Bush’s 2003 tax cuts than
they did after President Clinton’s 1994 tax hikes.” The Senate recently voted 53–47 in support of a two-year extension of
President Bush’s 15% rates on capital gains taxes and dividends. The vote should have been 100–0. Democrats formed the base of the opposition,
giving us a preview to the vital importance of the 2006 elections.

Close Down the IRS

Replacing the current income tax with a consumption tax would be a real tonic for business and investing. Dividends and interest should not be taxed
twice. The elimination of all individual and corporate taxes along with the entire tax code and the IRS would kick start a huge boom in the U.S. Fred
Barnes, executive editor of The Weekly Standard, recently opined in the WSJ, “Liberals regard an ownership society with loathing.
After all, it goes against 70 years of national policy in favor of expanding the size and scope of the federal government and the power of government
officials.”

Chapter 11 for GM

The Democratic Party is committed to the concept of income-redistribution as a way to buy votes. And the unions have been the party’s closest
partner in crime. For the U.S. to compete with the Asian world, India, and Brazil going forward, we are going to have to wake up. Largely because of
union pressure, GM and Ford are on the way to Chapter 11. I would own neither and would suggest that GM be dropped from the Dow. I’m not suggesting
that either company will cease to exist. What I am saying categorically is that neither company, as currently configured, is capable of competing in
the New World. Mountains of benefits to retired workers plus the level of wages and benefits paid to current workers pack a one/two punch for reorganization.

The stock market, the US$, and gold all act as barometers of our success, and you, as an investor, have an opportunity to profit in each instance. I’ve
already explained that the U.S. stock market environment looks pretty good with no serious barriers in place as I write. And, of course, there is the
positive pull of the presidential election cycle.

As to the US$, as I show in Charts #26 and #27, the outlook is not good, despite a little rally in recent months. These charts, plus #25, give you the
longer-term picture for the US$, and the picture is not pretty. I have been regularly advising investments in Canada, Singapore, Hong Kong, Australia,
and New Zealand as ideal for diversification away from the US$. I also like Norway, Ireland, Finland, and Switzerland. Time deposits in Swiss francs
are never a bad idea. Nor is it a bad idea to have a foreign banking relationship. Switzerland is probably my first choice, although a relationship with
a financial institution in any of my favored countries can serve you well.

You will always find a nice group of international investment candidates in “What’s Up & What’s Down.” Canadian General
Investments was up 38% in 2004, 55% in 2005, and 15% so far this year. You have had a great run here and should have really gone to the bank with
this closed-end fund. The iShares for Australia, Hong Kong, and Singapore have also given you outsized gains. Third Avenue
International Value, my #1 favored fund (now closed to new investors), has been terrific. I love the portfolio as it is currently constructed.
You can add with impunity to your positions in any of these funds.

The Golden Rule

What about the ultimate barometer, gold? With the culmination of the two-decade bull market in bonds, gold is in a new era. Interest rates have now
reached their lows for the cycle. As such, the lid is off gold and, for that matter, silver, platinum, and diamonds. Last year, the streetTracks Gold
Shares ETF did you well with a gain of over 17%. In 2006, you already have a 6% gain. Add to your StreetTracks Gold Shares. By next month, I hope to
be able to give you details on a silver ETF. Silver is cheaper than gold, and gold is real cheap. In Chart #24, I give the theoretical price for gold
based on the expansion of world currency reserves. In terms of dollars, gold, on a one-for-one basis against world currency reserves, is targeted at
over $4,500/oz. Would all central banks back their currency reserves with gold? By no means would this be the case—in fact, quite to the contrary.
Central banks and politicians have an imbedded disdain for the discipline of gold. I’m not a goldbug, but I am keen on being observant. For last
two decades, as inflation and interest rates fell, I had no special interest in gold, unlike the 1960s and 1970s, where I had a strong interest when
inflation and interest rates ran wild.

The perilous state of the US$, based on our gigantic trade deficit, is one reason to own gold. A second is the emergence of China and India as consumer-oriented
economies. In my investment box of the Economic Supplement, I list an ideal way for you to invest in gold—streetTracks Gold Shares. The
fund is perhaps confusing in name. It does not invest in shares of gold mining companies. Rather the fund is a gold bullion fund (trust). The trust’s
allocated gold bullion is kept in the form of London gold delivery bars (400 oz.) and held in an allocated account. The gold bullion is held by the custodian,
HSBC Bank USA, in its London vault or in the vaults of sub-custodians. Gold Shares are intended to offer investors a means of participating in the gold
bullion market without the necessity of taking physical delivery of gold. GLD is listed on the New York Stock Exchange and is available through a standard
brokerage account. The expense ratio is a modest 0.40%/year. Pricing is based on the price of 1/10 of an ounce of gold.

Next is a new listing of a fund I used to recommend when it was managed by my long-favored Benham Capital Management. Benham has long since merged with
the American Century Group of mutual funds. The fund is called American Century Global Gold, and this no-load fund, unlike GLD, invests in gold
mining shares. At most recent report, the top holdings are Newmont Mining and Barrick Gold. Add this fund to your roster before it closes. If
gold takes off on some volume, the fund must close as there are only a handful of gold mining shares of any size. The supply is strictly limited.
Do not miss the boat as so many investors did (once again) with Vanguard Precious Metals & Mining (up 44% last year). Own my two advised
gold funds 50/50.

Shanghai Gold Exchange

Less than three years ago, the Shanghai Gold Exchange was formed. That was really the first move in opening up China’s gold sector. Following
was the lifting of controls on private domestic consumption of gold. Gold demand in China has been picking up and now exceeds China’s gold production.
On a per capita basis, Chinese consumption is today way below the world average. As China and India continue on their course as members of the world
consumerism community, demand for gold as well as for silver and diamonds will rise. And supplies of all three hard assets are limited, unlike, for example,
paper money created literally out of thin air by monetary authorities worldwide. Remember here, the two-decade negative drag on hard assets created by
the collapse in U.S. interest rates and inflation is now history. Anybody blithely informing you with a sniff that gold, dear, has been a poor place
to be, gets history right, but is not looking forward with much common sense.

China Gold Panda

Finally on the gold front, continuation of the wonderful saga of the China gold Panda. Minted in strictly limited quantities since 1982, the Panda image
on the coin’s face changes annually (2002 an exception). I buy my own Pandas from
pandaamerica.com, one of the two original U.S. dealers. Investors should stick with the 1982, 1983, 1984, 1993, 1994, 1995, and 1996 mintages.
All are rare. With the possible exception of the 1993, the others may now be available only as part of complete sets. I’d get the 1993
while you can. You’ll pay about $900 now and a whole lot more if much incremental demand hits the market. Complete sets were recently available
in a super-tight market for about $22,500. You can call PandaAmerica at 800-472-6327.

China’s pool of private financial assets stands at over $1 trillion. This monster pool is referred to as the “crouching tiger.” Even
with their nascent consumer economies, China and India stand with the U.S. as the world’s three big gold buyers. What happens when real consumer
demand kicks up in India and China?

The Silver Era

Next on my list is silver. Did you know that silver has antibacterial and antimicrobial agents useful for antibacterial coating on consumer appliances
such as cell phones and kitchen appliances? And in July this year, the European Union’s lead-free solder and brazing regulations are to kick in.
A tin-silver-copper solder looks to be the likely replacement. Over the last six decades, world silver bullion stock piles have been cut to perhaps 500
million ounces, give or take depending on the industry source you trust most. That is down from a peak of perhaps 10 billion ounces. When the current
stock piles are depleted, what happens to the price of silver? Don’t forget, perhaps 70% of silver mine production is as a byproduct of other metals
production, and mine production of silver is pretty inelastic. Silver has the (1) highest electrical conductivity, (2) the highest thermal conductivity,
(3) and highest reflectivity of all metals.

Here are eight charts on silver—four long term, four short term. The long view shows that (1) silver is cheap versus gold, (2) silver is low on
an absolute basis, (3) silver is cheap in real or inflation adjusted terms, and (4) silver is cheap versus oil. My shorter-horizon charts show that silver
prices continued to decline in a “long cycle” sense until 2003. Since then, there has been enough firming up on the charts that I believe
pricing conditions are trending up for silver. I’ve posted these eight silver charts on my Website (www.youngresearch.com) for easy reference,
along with a link to the top-60 silver producers worldwide with public company notation where possible. I expect a brand-new silver bullion ETF fund
will be available to you within the next few months.

Diamonds

Only 300,000 diamond carats are mined annually. Many sophisticated diamond buyers have become increasingly upset that diamonds were being used to fund
brutal killing campaigns—thus the birth of the Kimberley Process (as in South Africa) that calls for diamonds mined after 2003 to be shipped with
government validated certificates in special containers—ostensibly tamperproof. Canada, ever with its finger on the world’s social pulse,
has come up with a nifty invisible way to ensure Canadian mine authenticity. You won’t be able to see the neat little polar bears or maple leafs,
but jewelers can. For those with socially biased diamond concerns, these hidden marks make Canadian diamonds a pleasant alternative to Kimberley Process
diamonds. I look for consistent demand for diamonds from India, China, and Japan. Here’s an item from my long-favored Richard Russell (subscribe
to Dow Theory Letters, as I do, at PO Box 1759, La Jolla, CA 92038). Sayeth R.R., “The standard for diamonds is the one-carat D-color internally
flawless stone. D-color is the highest (most colorless) color for a diamond. -D means dead white. In 1980, a one-carat D-color internally flawless diamond
sold for $60,000. Diamonds have risen about 30% since Jan. 2005… It [one carat -D] sells for $18,000, still far below its 1980 price.”

Play diamonds through my newly listed Monster Master List Aber Diamond (NASDAQ: ABER). Aber has a 40% ownership in the Diavik diamond mine in
the Northwest Territories (Canada) and a 51% interest in luxury jeweler Harry Winston. H.W., headquartered in NYC, also has high-end jewelry outlets
in such outposts as Beverly Hills, Las Vegas, Paris, Geneva, Tokyo, Osaka, and Taipei. Healthy demand is starting to pick up in China and India as well
as in the Middle East and Turkey. Winston will expand to 25 salons by 2008 and 40 or more by 2012.

Aber Diamond pays a $1/share dividend for a yield of 2.7%. At last record, the balance sheet is strong with long-term debt of $168 million and cash
of $181 million. Diamond mining is a recent phenomenon in Canada. Today, Canada, with its two producing mines (both in the Northwest Territories), already
ranks as the third-largest producer of diamonds in the world. Aber is a reasonable, albeit aggressive, way to participate in a market certain to gain
consistent traction as, over the coming decades, China and India become consumer-driven powerhouse economies.

Funds

In today’s complex international environment, a 32-stock diversified portfolio is my target, with capital of at least $350,000 to meet my target.
I view these numbers as ideal, not as a mandate. If your financial resources do not allow replication of such a widely diversified portfolio, you are
best served going the fund route to include no-load, low-cost mutual funds, listed closed-end funds, and exchange-traded funds.

Closed

Third Avenue Small Cap Value has closed. I hope you have not missed the boat here. I have given you ample warning on the potential closing of this fund,
as well as for the recently closed Vanguard Precious Metals & Mining fund. Due to the closing of so many of my favored funds, Young Research is now
analyzing the desirability of extending our Retirement Compounders program to a mutual fund. Your thoughts and comments are welcome at www.youngresearch.com.

I’m adding iShares Goldman Sachs Natural Resources Index Fund and deleting Janus Fund, the Oak family of funds, T.
Rowe Price Dividend Growth, and Vanguard Growth & Income. I often delete a name when there is duplication from another name on my list.
Although it is not necessary to liquidate any of these positions, to get the most benefit from my monthly letters, you should stick with the names
I write about.

This quarter, for my own account, I’m adding or taking a new position in Fidelity International Real Estate, Third Avenue International
Value, PIMCO All Asset, Vanguard Precious Metals & Mining, and American Century Global Gold.

Common Stocks

I’m adding TimberWest Forest (TORONTO: TWF-UN.TO) and INCO (TORONTO: N.TO) and deleting Flextronics (NASDAQ: FLEX) and Century Bank (NASDAQ: CNBKA).

TimberWest is a Canadian company located just over the border from Washington state. Most of the company’s standing inventory is Douglas Fir.
At the current $13.85 CAD/share, the stock yields 7.5%. Ideal.

INCO. China relies on imports for nearly 60% of its nickel. India 100%. Get the message? Inco has extended its offer for Falconbridge (NYSE:
FAL) (stay with it). A conclusion of this deal will create the world’s largest nickel producer. I’ll let you know when it is the right time
to buy Inco, but have some cash reserves on hand. I love the nickel story.

Before continuing on with individual stocks, I want you to go to www.youngresearch.com where I have laid out the record since inception of my
Top-10 Countdown stocks. The results are comforting.

Harley-Davidson (NYSE: HDI). The recent Sports Illustrated swimsuit issue (SI‘s most eagerly awaited issue of the year) runs
to an appealing-to-the-end 228 pages. The most recent issue of American Iron magazine, the favorite Harley mag (ex Easyriders), comes in,
however, way ahead of SI with a wrist-snapping 308 pages. What do you think? I’ll stay with Harley.

Sturm, Ruger (NYSE: RGR) Chairman and CEO William Ruger will leave the company and the board. Hooray! Stay with the stock.

Barrick (NYSE: ABX) is winding up its deal to absorb Placer Dome (NYSE: PDG). Stay on board both.

J.M. Smucker‘s stock (NYSE: SJM) has been weak as the Street apparently likes Crisco better than it does the near-term earnings guidance
from “the boys.” I’d stick with “the boys.” They ask you to believe an 8% trend EPS growth rate, which is fine with me.

Rio Tinto (NYSE: RTP) reported revenues of nearly $21 billion last year, has $2.3 billion in cash, and announced a year-end dividend of $0.415
and a special dividend of $1.10, in addition to $0.835 per share paid out already in 2005. Leaves you breathless. Stick around.

Marvel Enterprises (NYSE: MVL) jumped 10.5% today. Management now says it will do $320 to $350 million in revenues in 2006. The Street has looked
for about $310. Oops. I’d buy Marvel here.

Federated Investors (NYSE: FII). The Street has a healthy disdain for mundane Federated. This view is indeed justified based on results of recent
years. I think astute marketing-oriented management could do well here. Federated is primarily a money market and fixed-income firm. As rates trend up
and those 76 million boomers get set to begin pulling the retirement rip cord in 2008, I think Federated can convince a decent chunk of the flock to
fly in its direction. Buy.

T. Rowe Price (NASDAQ: TROW). I simply have a long-term bias for T. Rowe. They do a real nice job, and management doesn’t come off as know-it-alls.
Buy.

St. Joe (NYSE: JOE) is one of my favorite companies in the country. It has wonderful assets and highly regarded management, but I’m going
to remain on the sidelines until at least the end of the 2006 hurricane season (a good shot at causing a lot of damage).

Caterpillar (NYSE: CAT) will do even better in 2006 than its upward revised estimates indicate. If you can believe it, CAT is prevented from
filling all of its orders on time because it can’t get enough steel castings, large tires, and other key components. Stay with CAT.

Union Pacific (NYSE: UNP) finally has gained some pricing power, which is interesting given all the bottlenecks in the company’s system
in recent years. It should be hard even for UNP’s management team to screw up this story. Stay with Union.

Norfolk Southern‘s (NYSE: NSC) slick management has come up with a transportation system based on sophisticated software. Its railroad
runs on time. Norfolk is taking business from the truckers in a big way. Buy the stock.

Disney (NYSE: DIS) and Steve Jobs? To me it’s a little like, is he an old young guy or a young old guy? I’m not sure which. Initially,
I would have said sell Disney; it paid too much for Pixar, but now I’ll wait. I don’t want to sell Jobs short—yet.

Whole Foods (NASDAQ: WFMI) has purchased renewable energy credits (REC) from wind farms to offset 100% of the electricity used in all its stores,
facilities, bake houses, distribution centers, regional offices, and national headquarters in the U.S. and Canada. The only outfit doing more in terms
of green power purchasing is the U.S. Air Force. Stay with Whole Foods.

PepsiCo (NYSE: PEP) is spending big to grow in China but is having a hard time keeping up with demand for Gatorade, which the calcified crowd
at Coke (NYSE: KO) eschewed. Nice move. Lay’s potato chips are a home run though not in my lunchbox. Talk about great management. PepsiCo
remains one of the first stocks to buy for a core portfolio.

The China/India Issue

In terms of demand for commodities, India has not even gotten going. Today, India consumes about 2% of the world’s copper versus maybe 22% for
China. Laurence Brahm writes in an article, “Hi-Tech, Low-Tech Futures” that “America supports the development of India into a global
power, but remains reserved about China… Compare any five-star hotel in Beijing and New Delhi: the service in New Delhi is always better… Contrast
the education systems of both countries. India’s system is British old-school, even at primary levels. China’s educational system paralyzes
critical thinking… India’s capital markets are mature and transparent: China’s are neither.” The U.S. is already India’s
largest trading partner. India, historically controlled by unions and laboring under a caste system, poor infrastructure, huge budget deficits, and an
inefficient state-owned banking system, has a long road ahead. The U.S. has signed a joint defense pact with India. India has the edge on China on many
fronts.

Where to Start

The Vanguard GNMA yield is now 5.36%—my favorite fixed-income idea. My highly favored Monster Master Listing BlackRock Enhanced Fund writes covered
calls to boost yield, ideal for compounding and cash to spend in retirement at Whole Foods, Sturm Ruger, or your Harley shop. Young Research’s
Retirement Compounders work underpins my Top-10 Countdown for you. Go here first for each month’s top stocks and to www.youngresearch.com for
the comforting historical track record. Make it a good month.

Warm regards,

Richard Young signature

Richard C. Young

P.S. Last year, Russia set a record with over $6 billion in weapons exports, mostly to China and India. In China, there were over 80,000 incidents of
social unrest last year. Satellite photos show a buildup in China’s nuclear forces. Military implications next month. There’s trouble afoot.

P.P.S. Go to www.youngresearch.com for my special music feature on the Rolling Stones. And you’ll also find links to all the major and
minor world gold and silver miners plus many new features added.

P.P.P.S. E85—the fuel of the future? Major implications next month.

Richard C. Young’s Intelligence Report® (ISSN 0884-3031) is published monthly by Phillips Investment Resources, LLC, 9420 Key West Ave., Rockville, MD 20850. Please write or call if you have any questions. Phone: 301/424-3700 or 800/301-8968. E-mail: service@intelligencereport.com. Web address: . Editor: Richard C. Young; Group Publisher: Michael Bell; Chairman: Thomas L. Phillips; Associate Editor: Deborah L. Young; Marketing Manager: Jim Brinkhoff; President: John J. Coyle; Research Director: Jeremy Jones, CFA; Sr. Managing Editor: Shannon Miller; Business Manager: Thomas C. Burne; Research Associate: Rebecca L. Young; Editorial Assistant: Danielle Hart; Sr. Vice President: Christopher Marett; Subscriptions: $249 per year. © 2006 by Phillips Investment Resources, LLC, Founding Member of the Newsletter Publishers Association of America. Photocopying, reproduction or quotation strictly prohibited without the written permission of the publisher. While the information provided is based upon sources believed to be reliable, its accuracy cannot be guaranteed, nor can the publication be considered liable for the investment performance of any securities or strategies mentioned. Subscribers should review the full disclaimer and securities holdings disclosure policy at /disclosure.php or call 800/219-8592 for a mailed copy. Periodicals postage rates paid at Rockville, MD, and at additional mailing offices. Postmaster: Send address changes to Richard C. Young’s Intelligence Report, Phillips Investment Resources, LLC, 2420A Gehman Lane, Lancaster, PA 17602.

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